Including Real Estate in Your Investment Strategy
September 29, 2008
Designing an investment portfolio that fits your needs is always a complex process. Unfortunately, many people neglect real estate as one of the most attractive ways to diversify their investments because they aren't aware of the variety of ways real estate can be included. In the past twenty years, the real estate market has exploded and the opportunities to invest in it either directly or indirectly have grown to keep pace.
Individual investors should always consult a professional if they want to design a portfolio that properly balances the opportunity for greater gains against possible risks. This will vary depending on where you are in life, what your retirement plans are and a host of other factors, but a few simple things should be kept in mind.
* Diversifying is always essential to designing a good investment portfolio. That is, you should never have more than a third of your investments tied up in any one form.
* Learn as much as you can about the individual categories and the risks involved with each. Generally speaking, stocks and bonds are somewhat safer, but show a slower return, although it does tend to be steady. Commodities (precious metals, oil, natural gas, etc.) are riskier but with a great return.
* Keep in mind that mutual funds can provide you with the power of group purchasing when investing while spreading the risk over a larger group of investors.
* Don't forget real estate as a solid investment choice.
Real estate is often neglected when designing a portfolio unless the individual is purchasing property himself. Actually, the best way to invest in real estate is often through what is called a Real Estate Investment Trust, or REIT. This is an entity set up specifically to invest in large properties such as hotels, high rise properties and malls. The three categories of REIT's are:
1. Equity REITs - These will actually own property which makes money from the rent being paid by tenants. The investors get a portion of the rents received.
2. Mortgage REITs - These are organizations that write mortgages to real estate developers or invest in mortgage-secured financials.
3. Hybrids - Simply an organization that invests in both mortgage and equity REITs.
You can also invest directly in real property without becoming a part of an REIT. After all, the need for real estate will never go away, and land generally increases in value over the long term, so it's a relatively good investment strategy, particularly if you are planning a long-term portfolio. It's a low-risk strategy that historically has shown to be quite profitable in most cases (nothing is risk free).
When adding real estate to your investment portfolio, be sure to do the research and legwork to educate yourself. Study the market in your area, learn all you can about any property you are considering and decide whether becoming a landlord or flipping properties will be more lucrative in the long term. It's important to know if you have enough available cash flow to be able to keep your property until it's value has reached the point where selling makes the most sense. To include real property in your portfolio, you need to periodically check the market and make sure the property is working for you in the most profitable way possible.
To read more about real estate investment information, visit Jill Kane's sites at http://www.1st-real-estate.com
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